Introduction
Creating an international investment portfolio is crucial for investors seeking to diversify their assets and mitigate risk. By investing in foreign markets, you can potentially capitalize on growth opportunities that may not be available in your local market. Below are three practical examples illustrating how to build an international investment portfolio.
Example 1: The Global Equity Approach
In this approach, an investor seeks to invest in stocks from various countries to achieve broad exposure to the global equity market.
An investor named Sarah, based in the United States, decides to allocate 70% of her portfolio to international equities. She selects stocks from developed economies such as Europe and Japan, as well as emerging markets like India and Brazil. Sarah’s portfolio includes:
- 30% in European Equities: Investing in popular European companies like SAP (Germany) and Nestlé (Switzerland).
- 20% in Japanese Equities: Focusing on firms such as Toyota and Sony.
- 20% in Emerging Markets: Including Indian tech giant Infosys and Brazilian energy company Petrobras.
To maximize her diversification, Sarah also uses an exchange-traded fund (ETF) that tracks an international index, such as the MSCI All Country World Index, for an additional 30% of her equity allocation.
Notes
- This portfolio focuses on equity investments, which are subject to market volatility.
- Sarah should regularly review the performance of her international investments and adjust her allocation based on market conditions.
Example 2: The Balanced Global Approach
This example illustrates a balanced investment strategy that includes equities, bonds, and alternative assets from different regions around the world.
Mark, an investor looking for stability and growth, decides to create a balanced portfolio with 50% allocated to international assets. His approach involves:
- 30% in International Equities: Similar to Sarah, he invests in a mix of developed and emerging markets, but he diversifies further with funds focused on Asia and Latin America.
- 20% in International Bonds: He purchases bonds from European governments and corporations to add fixed income to his portfolio, mitigating the risk associated with equity investments.
- 10% in Alternatives: Mark invests in international real estate through a global real estate investment trust (REIT) that includes properties in various countries.
This balanced approach allows Mark to capture growth from equities while providing the stability from bonds and alternative investments.
Notes
- Mark should consider the currency risk associated with international bonds and equities.
- He may want to periodically rebalance his portfolio to maintain the desired allocation.
Example 3: The Sector-Specific International Portfolio
In this example, the focus is on investing in specific sectors that have a strong presence in international markets, allowing the investor to capitalize on global trends.
Emily, an investor interested in technology and healthcare, aims to create a portfolio that emphasizes these sectors worldwide. Her international portfolio consists of:
- 40% in International Technology Stocks: Investing in companies like Alibaba (China) and ASML (Netherlands), which are leaders in their fields.
- 30% in International Healthcare Stocks: Focusing on firms such as Roche (Switzerland) and Takeda Pharmaceutical (Japan).
- 30% in International ETFs: She adds two ETFs that provide exposure to global tech and healthcare sectors, respectively, ensuring diversification within those industries.
By concentrating on specific sectors, Emily can benefit from global innovation and demographic trends, such as the aging population and the rise of digital services.
Notes
- Sector-specific investments can be more volatile due to market conditions affecting those sectors.
- Emily should stay informed about global developments that may impact her chosen sectors.